AD Data: What Will It Take To Crush Home Prices?


In the world of tracking economic data, we have had to put much more emphasis on weekly data more now than ever. This is going to be crucial with the housing data as well as going out, especially with the purchase application data.

However, regarding the massive home price crash that has been talked about for 7 years, there needs to be a model that, like everything else in economics, shows the path for people to walk in first.

What did the BC housing data tell us?

That these radical economic theories didn’t stand up for the last 7 years

1. Affordability crisis: 

Cycle highs in demand in 2020 with double-digit year over year growth in purchase application all the way to March 18th. The purchase application data hit a cycle high in the BC era in 2020. You can’t have rising demand, rising prices, and inventory levels stable and say an affordability crisis.

From Calculated Risk:

March 19th Application data

2. Student loan debt crisis: 

Cycle highs in housing demand in 2020. Millenials 20-year highs in home buying with the longest economic and job expansion ever recorded in history in the BC era. 

3. No homes to buy 

Cycle highs in demand in 2017 and 2020 both times when inventory hit cycles lows. Remember, the no houses to buy thesis only comes out when sales are missed. This has been an ingenious marketing tactic the housing industry has used since 1996.

March EHS

Housing demand, total home sales I didn’t believe could break over 6.2 million from 2008-2019. However, I have always been years 2020-2024 guy because that is when housing demographics kick in. Both new and existing home sales combined were looking at over 6,400,000 in 2020 BC. That data surprised even me.

Now we are in the AD stage (After the Disease) Let’s focus on 5 things that need to happen for home prices to crash. So that all these Housing Bubble 2.0 people can say they didn’t waste their life trolling America for 7 years with fake accounts.

1. The Chaos Theory and the Butterfly Effect

I talked about this back on Feb 3rd that this virus can bring rates down with the stock market. Also, we have had times even in the previous expansion that negative growth happened 3 times, and we had a sub 1% growth 4 times to recovery.  However,  the bullish U.S. economic case is assuming lockdown protocols will be taken off shortly. If you’re in the home price crash camp, you really need lockdown protocols to stay in place a lot longer. Not 30-60 days but 4-11 months. The affected amount of economic damage done with more extended lockdown protocols will impact demand, even more, creating more inventory over time.

 2. A) You need a lot of inventory fast.

The velocity of inventory rising in the next 3 months is limited. It should increase with a longer duration time to sell a home. However, Unlike 2006 when demand was getting weaker, and inventory was above 6 months. It’s the opposite now during the B.C. stage. However, of A.D., this is why lockdown protocols have to stay on for much longer. This will then mean that demand gets hit with a longer duration.

Nar 2006

2. B) As you can see, we were at cycle highs in demand with the inventory at cycle lows.

Inventory levels during this time of lockdown protocols are starting from a much different spot than 2006. Also, the demographics for housing look solid as the biggest age group in U.S. history is ages 26-32, and the first time median home buyer age is now 33.
Existing Inventory NAR

3.) You need a lot of distress sales in 2020. Due to the timing of the year, this would have to be a 2021 story. Foreclosures are a long process. The government is going to try its best to prevent as many foreclosures as possible. Even if you see a noticeable rise in delinquencies, this doesn’t mean distress bulk foreclosure buying is about to happen in 1-2 months. Due to the forbearance factor in 2020, I would keep an eye on this in 2021 for sure. The legit high-level risk homeowners are 2018/2019 and 2020 FHA home buyers because they lack selling equity, and they would make up that smaller portion of sub 660 fico score home loans bought in this cycle.

Feb Mortgage Fico Score

Feb CC balance

4.) You need Sellers to accept deep discounts on their homes to sell and not take their listing off the market during lockdown protocols. Last year the best housing data line I saw was that real home prices were negative year over year; that wasn’t the case this year with the demand curve rising and inventory falling.  Housing tenure is at 10 years, from 1985-2007 this was running at 5 years roughly. People are staying put longer and longer, keeping a lid on inventory. If you’re in the home price crash crowd for 2020, not only do you need sellers wanting to sell their homes at significant discounts, you need sellers to stop delisting their homes in this market.  I am not going to talk much about mortgage rates because unless mortgage rates get above 4.5%, rates are too low to really impact housing negatively. If mortgage rates due rise, that will be due to the economy getting better.

April Real Home Prices YoY Log

5.) A lot of the jobs lost already are more tied to renters’ financial profiles than homeowners and homebuyers. What you need to see is that median and higher-income jobs get hit and not come back anytime soon to take that demand off the market and create more inventory with duration.

Nick Burner on twitter is a must-follow for this data for those who want to track this.

Nick Bunker@nick_bunker Roughly 81% of the job losses in March were in low average-wage industries.
March low wage job

A new blog post estimates the cost of offsetting lost worker income at varying levels of unemployment, and provides considerations for fiscal policymakers

COvid job loss thesis

If you’re part of the housing bubble, 2.0 crash call troll camp looking for 35%-65% price declines and really getting back to 1996 because all bubbles go back to the start.

April Nominal CS HP

Then the things above are what you need to happen quickly. My advice is to take the next 3 months of housing data and put a giant * on all of it. Wait until July 15th, by that time, we have a lot of questions answered, and we will be getting the June existing home sales report soon after that.

For those who are looking for the bright side of light. This is for you.

These are dark times. But even in dark times, we are preternaturally prepared to see the light at the  end of the tunnel. We learned in the human physiology class that the photoreceptors of the human eye can detect a single photon of light. While it may not be until nine or more photos hit the retina that we perceived light, we detect before we can perceive. Likewise, if we are diligent, we will be able to identify the return of hope and light coming back into the American economy before it is perceived by all those poor masked souls around us.

For HousingWire, I wrote this week 5 things we really want to see to know that the economy is genuinely headed from the AD ( After The Disease) stage into the AB (America is Back) Stage.

5 indicators that will show when the housing market is rebounding from COVID-19

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data daily on his Facebook page and is a contributor for HousingWire.